Part 1 Candle Stick Pattern

How Option Trading Works

Let’s understand with an example:

Suppose NIFTY is trading at 22,000 points. A trader expects it to rise to 22,500 within a week.
He buys a NIFTY 22,000 call option for a premium of ₹100. The lot size is 50, so he pays ₹5,000 (₹100 × 50).

If NIFTY rises to 22,400 before expiry, the intrinsic value becomes 400 points (22,400 - 22,000).
Profit = (400 - 100) × 50 = ₹15,000.

If NIFTY stays below 22,000, the call expires worthless, and the trader loses ₹5,000 (the premium).

This illustrates the asymmetric risk-reward nature of options — the buyer’s loss is limited to the premium, but the profit potential is unlimited.